Is Transformers and Rectifiers (India) (NSE:TARIL) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Transformers and Rectifiers (India) Limited (NSE:TARIL) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Transformers and Rectifiers (India) Carry?

As you can see below, at the end of September 2025, Transformers and Rectifiers (India) had ₹3.66b of debt, up from ₹2.44b a year ago. Click the image for more detail. But on the other hand it also has ₹3.94b in cash, leading to a ₹283.0m net cash position.

A Look At Transformers and Rectifiers (India)'s Liabilities

According to the last reported balance sheet, Transformers and Rectifiers (India) had liabilities of ₹9.37b due within 12 months, and liabilities of ₹834.4m due beyond 12 months. Offsetting these obligations, it had cash of ₹3.94b as well as receivables valued at ₹5.41b due within 12 months. So its liabilities total ₹851.1m more than the combination of its cash and short-term receivables.

This state of affairs indicates that Transformers and Rectifiers (India)'s balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the ₹85.1b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Transformers and Rectifiers (India) boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Transformers and Rectifiers (India)

In addition to that, we're happy to report that Transformers and Rectifiers (India) has boosted its EBIT by 67%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Transformers and Rectifiers (India) can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Transformers and Rectifiers (India) has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Transformers and Rectifiers (India) saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

We could understand if investors are concerned about Transformers and Rectifiers (India)'s liabilities, but we can be reassured by the fact it has has net cash of ₹283.0m. And we liked the look of last year's 67% year-on-year EBIT growth. So we don't have any problem with Transformers and Rectifiers (India)'s use of debt. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Transformers and Rectifiers (India) has 2 warning signs we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.